What Makes an Online Business Valuable?

Prosper Show featJodi Gaines Pereira, co-founder of ReplyManager which was acquired by XSellco early in 2015, is at The PROSPER Show and exclusively reporting back on some of the sessions for Tamebay:

Today Jodi reports on the PROSPER Show session “Preparing Your Seller Business for Eventual Sale” with Mark Daoust from QuietLight Brokerage:

Prosper Show 2016

What Makes an Online Business Valuable?

There is a lot to think about when selling a business, much of which should be planned for in an exit strategy. You may never think you’ll sell the business or perhaps you believe it’s too far away to worry about now. But “later” often comes sooner than we expect and one never knows how they’ll feel about selling a business five, ten years down the road. So it’s not only good to do the work ahead of time to be prepared, it’s just good business to get all your ducks in a row.

So what makes a business valuable?

Risk Mitigation

Buyers are sensitive to risk. By identifying and reducing risk, you’re adding value to your business. Conduct a SWAT analysis to identify weaknesses and threats. Find dependencies (are you dependent on one category or marketplace). Identify barriers to entry. Assess market conditions.

Growth Prospects

Avoid the word “potential” when referring to growth. Identify a clear path, looking at obvious signs of historical growth. Avoid selling when growth occurs at an accelerated rate and when it is flat lining.

Transferability

Can someone step into your business from day one and run it? This is where it gets a bit tricky for marketplace sellers, but otherwise, online businesses have a higher level of transferability. Look at licensing requirements, special relationship with vendors (will they sell to your buyer), technical knowledge and personal branding (best to remove for a resale). Owning your own brand allows for a much smoother transfer.

Verifiability

Buyers need to see and verify a track record or to see proof of growth prospects. Keep good records and track data points. Separate your businesses, especially if you are running multiple businesses through one entity. Be sure finances can be recreated. And in the US, Accrual Basis accounting is the best way to go.

There were many questions from the audience on the issue of selling an Amazon business. Although complicated, Mark agreed it could be done, however, did not provide the information on how to accomplish such a task.

Tamebay Take

We’ve seen a fair few marketplace businesses sold over the years, the most recent notable one being Aceparts. The one thing that invariably stands out is that the marketplace business has grown off marketplaces.

If you really want to add value to your business for the future you must get your own website performing and you must grow your mailing list with customer contacts.

Don’t forget everyone started with a zero feedback eBay and Amazon account. Anyone can open a marketplace account and in reality no matter how much feedback you have there’s very little worth in a User Id. There’s value in your supplier relationships but again anyone can do some research and source some product.

The real value in your business will be a customer base that you can market to and a proven track record of selling to them.